Flagstone Reinsurance Holdings, S.A. (NYSE: FSR) today announced fourth
quarter 2010 basic book value per share of $16.48 and diluted book value
per share of $15.51, up 3.7% and 3.0%, respectively, for the quarter
(percentages inclusive of dividends). Net income attributable to
Flagstone’s common shareholders for the quarter ended December 31, 2010,
was $15.0 million, or $0.20 per diluted share, compared to a net income
of $71.5 million, or $0.86 per diluted share, for the quarter ended
December 31, 2009. Net income attributable to Flagstone’s common
shareholders for the year ended December 31, 2010, was $97.1 million, or
$1.23 per diluted share, compared to a net income of $242.2 million, or
$2.87 per diluted share, for the year ended December 31, 2009.

Operating highlights for the periods ended December 31, 2010 and 2009
included the following:

For the three months ended December 31,

For the years ended December 31,

2010

2009

% Change

2010

2009

% Change

(Expressed in millions of U.S. dollars, except percentages)

Operating income (1)

$

5.0

$

58.4

(91.4

)

%

$

43.6

$

194.5

(77.6

)

%

Gross premiums written

$

142.4

$

123.7

15.1

%

$

1,097.8

$

988.5

11.1

%

Net premiums earned

$

204.5

$

203.1

0.7

%

$

852.1

$

758.5

12.3

%

Combined ratio

105.7

%

73.3

%

32.4

%

101.6

%

74.7

%

26.9

%

Total return on investments

0.8

%

1.4

%

(0.6

)

%

4.2

%

4.6

%

(0.4

)

%

(1) Operating income, a non-GAAP financial measure, is
defined as net income attributable to Flagstone adjusted for net
realized and unrealized gains (losses) - investments, net realized
and unrealized gains (losses) - other and net foreign exchange
losses (gains). A reconciliation of this measure to net income
attributable to Flagstone is presented at the end of this release.

CEO David Brown commented: "2010 was a positive year for Flagstone.
Despite an unprecedented number of large international events, we were
able to grow book value by 12.1% for the full year, and by 3.0% in the
fourth quarter. Since our founding five years ago, our team has worked
diligently to build a platform that today produces quality underwriting
opportunities from around the globe, as well as sustainable
profitability on an annual basis. It is this diversification, both
geographically and by business line, that provides us with immense
global opportunities to choose from. Our selective underwriting approach
coupled with this diversification, has resulted in superior and
sustainable underwriting performance, proven by our 5 year average Loss
Ratio of 42%. However, in 2010 North America was unusually quiet, as it
has been the past several years, while international activity was at
record high levels, a historical anomaly which impacts a diversified
portfolio such as ours and is reflected in our results.”

Brown continued, "Our written premium for the 4th quarter was
$142 million which represents an increase of 15.1% over the same quarter
last year and brings our total premium for the year to $1.1 billion
which is an 11.1% increase from 2009. We have grown by sourcing as much
business as possible and then selecting only the risks that meet our
stringent pricing targets. The increase in our written premium is a
testament to this strict oversight and was implemented with a close eye
on cycle management. As we have previously announced, increased
estimated losses from the earthquake in New Zealand, as well as exposure
to Australian aggregate covers and the Queensland flooding, negatively
impacted the fourth quarter. Furthermore, subsequent flooding in large
areas of Australia and Cyclone Yasi in Northern Australia will be first
quarter 2011 events and will impact the first quarter financial results.
Due to the timing and nature of these events we are assessing our
exposure and will provide a loss estimate when our assessment is
concluded. It is important to note that the occurrence of this number of
sizeable losses over the course of a year in this region is historically
unprecedented.

Brown concluded, "At the end of the fourth quarter, we also successfully
purchased additional protection from Montana Re, our fourth such
catastrophe bond transaction, further optimizing our capital structure
and making our portfolio more efficient. Finally, we have continued to
prudently manage our balance sheet and capital levels, and given the
market conditions, we have demonstrated our discipline by allocating
capital to share buy-backs. Flagstone and its affiliates repurchased
$91.9 million in the fourth quarter and $164.3 million during the year,
representing 7.6% and 13.6%, respectively, of our January 1, 2010
Flagstone shareholders’ equity.

Gary Prestia, Chief Underwriting Officer North America, said: "We
remained disciplined throughout 2010 and the North American portfolio
profited as a result. At January 1, 2011, we saw North American
catastrophe pricing generally down 7 to 10 percent on a risk adjusted
basis, and as such we were content to reduce risk by not renewing
underpriced business. The Northeast was among the more disappointing
regions and we believe it has reached a point where an increasing number
of programs are no longer supportable on a marginal pricing basis. The
only region that saw some price increases was the Midwest, driven by
programs directly affected by the high tornado and hail loss activity of
thepast three years. Overall, we expect cycle management to play
a key role as the year progresses. The recent catastrophe model changes
may partially offset this softening trend and increase demand; however,
large industry loss activity will likely be the major catalyst for
change.”

Guy Swayne, Chief Underwriting Officer International, added:
"Internationally, the January 1, 2011 renewals saw challenging market
conditions but the reinsurance market in general was disciplined. The
business we write in Europe and South Africa was stable and we were able
to maintain our price levels as we continue to optimize our portfolio.
Furthermore, due to the recent losses in Australasia, we saw significant
increases on rates in that region. Lastly, the specialty business was
mixed with some areas such as the marine and energy markets as well as
our engineering business showing improved pricing and good submission
flow.”

Results of Operations

The Company regularly reviews its financial results and
assesses performance on the basis of three reportable segments:
Reinsurance, Lloyd’s and Island Heritage (previously referred to as our
Insurance segment). Please refer to the "Segment Reporting” tables on
pages 12 and 13 for more information. All amounts in the following
tables are expressed in thousands of U.S. dollars, except percentages or
unless otherwise stated.

Underwriting results

Reinsurance segment

Below is a summary of the underwriting results and ratios for our
Reinsurance segment for the three months ended December 31, 2010 and
2009:

For the three months ended December 31,

2010

2009

$ Change

% Change

Property catastrophe reinsurance

$

32,806

$

32,725

$

81

0.2

%

Property reinsurance

29,423

23,490

5,933

25.3

%

Short tail specialty and casualty reinsurance

31,064

25,237

5,827

23.1

%

Gross premiums written

93,293

81,452

11,841

14.5

%

Premiums ceded

(30,425

)

(20,238

)

(10,187

)

50.3

%

Net premiums written

62,868

61,214

1,654

2.7

%

Net premiums earned

165,318

177,405

(12,087

)

(6.8

)

%

Other related income

557

81

476

587.4

%

Loss and loss adjustment expenses

(107,232

)

(52,079

)

(55,153

)

105.9

%

Acquisition costs

(35,322

)

(30,970

)

(4,352

)

14.1

%

General and administrative expenses

(28,050

)

(34,426

)

6,376

(18.5

)

%

Underwriting (loss) income

$

(4,729

)

$

60,011

$

(64,740

)

(107.9

)

%

Loss ratio

64.9

%

29.4

%

Acquisition cost ratio

21.4

%

17.5

%

General and administrative expense ratio

17.0

%

19.4

%

Combined ratio

103.3

%

66.3

%

The decrease in net underwriting results is primarily related to
incurred losses on more significant catastrophic events in 2010, as
compared to the same period in 2009.

Premiums ceded were 32.6% of gross reinsurance premiums written
compared to 24.8% for the same period in 2009.

The increase in the loss ratio compared to the fourth quarter of 2009
was primarily due to more significant losses from catastrophic events
compared to the same period last year, including net incurred losses
of $25.0 million on an Aggregate cover due to a number of losses in
Australia during 2010, the New Zealand earthquake ($23.0 million) and
the fourth quarter 2010, Queensland floods ($10.0 million).

Each quarter we revisit our loss estimates for previous loss events.
During the quarter ended December 31, 2010, based on updated estimates
provided by clients and brokers, we have recorded net adverse
developments for prior accident years of $6.3 million.

Below is a summary of the underwriting results and ratios for our
Reinsurance segment for the years ended December 31, 2010 and 2009:

For the years ended December 31,

2010

2009

$ Change

% Change

Property catastrophe reinsurance

$

512,466

$

503,006

$

9,460

1.9

%

Property reinsurance

173,585

142,182

31,403

22.1

%

Short tail specialty and casualty reinsurance

175,337

151,796

23,541

15.5

%

Gross premiums written

861,388

796,984

64,404

8.1

%

Premiums ceded

(150,820

)

(140,850

)

(9,970

)

7.1

%

Net premiums written

710,568

656,134

54,434

8.3

%

Net premiums earned

697,614

689,544

8,070

1.2

%

Other related income

3,817

3,622

195

5.4

%

Loss and loss adjustment expenses

(413,005

)

(241,358

)

(171,647

)

71.1

%

Acquisition costs

(127,498

)

(121,837

)

(5,661

)

4.6

%

General and administrative expenses

(136,249

)

(119,555

)

(16,694

)

14.0

%

Underwriting income

$

24,679

$

210,416

$

(185,737

)

(88.3

)

%

Loss ratio

59.2

%

35.0

%

Acquisition cost ratio

18.3

%

17.7

%

General and administrative expense ratio

19.5

%

17.3

%

Combined ratio

97.0

%

70.0

%

The decrease in net underwriting results is primarily related to
incurred losses on more significant catastrophic events in 2010, such
as the Australian floods, the New Zealand earthquake, Deepwater
Horizon and the Chile earthquake, as compared to 2009, and to the
increase in general and administrative expenses which is related to
asset impairment charges.

The increase in gross property and short tail specialty and casualty
reinsurance premiums written is primarily due to increased business
with existing clients and the addition of new clients.

Premiums ceded were 17.5% of gross reinsurance premiums written
compared to 17.7% for the same period in 2009.

The increase in the loss ratio was primarily due to more significant
losses from catastrophic events in the current year compared to last
year, including net incurred losses related to the Australian floods
($10.0 million), the New Zealand earthquake ($74.2 million), the Chile
earthquake ($64.0 million) and to Deepwater Horizon oil rig ($27.5
million). The Deepwater Horizon loss is driven by an ILW loss of $25.0
million, approximately 91.0% of which is attributable to Mont Fort.
While such loss expenses are consolidated within our results, they do
not impact Flagstone’s net income as they are attributable to the
noncontrolling interest. The loss (net of recoveries and reinstatement
premiums) to Flagstone’s reinsurance segment from the Deepwater
Horizon rig was $4.4 million.

Each quarter we revisit our loss estimates for previous loss events.
During the year ended December 31, 2010, based on updated estimates
provided by clients and brokers, we recorded net favorable
developments for prior accident years of $11.1 million. During the
year ended December 31, 2009, the net favorable developments for prior
catastrophe events were $6.6 million.

The increase in general and administrative expenses is mainly
attributable to charges of $15.0 million related to our decision to
sell corporate aircraft ($13.6 million of impairment charge related to
assets held for sale and $1.4 million loss on sale) and an impairment
charge of $1.1 million for intangible assets.

Lloyd’s segment

Below is a summary of the underwriting results and ratios for our
Lloyd’s segment for the three months ended December 31, 2010 and 2009:

For the three months ended December 31,

2010

2009

$ Change

% Change

Property reinsurance

$

16,764

$

21,135

$

(4,371

)

20.7

%

Short tail specialty and casualty reinsurance

22,127

14,805

7,322

49.5

%

Gross premiums written

38,891

35,940

2,951

8.2

%

Premiums ceded

(549

)

3,263

(3,812

)

(116.8

)

%

Net premiums written

38,342

39,203

(861

)

(2.2

)

%

Net premiums earned

35,027

23,635

11,392

48.2

%

Other related income

2,590

4,862

(2,272

)

(46.7

)

%

Loss and loss adjustment expenses

(23,638

)

(16,516

)

(7,122

)

43.1

%

Acquisition costs

(8,469

)

(6,076

)

(2,393

)

39.4

%

General and administrative expenses

(8,254

)

(4,420

)

(3,834

)

86.7

%

Underwriting (loss) income

$

(2,744

)

$

1,485

$

(4,229

)

(284.8

)

%

Loss ratio

67.5

%

69.9

%

Acquisition cost ratio

24.2

%

25.7

%

General and administrative expense ratio

23.6

%

18.7

%

Combined ratio

115.3

%

114.3

%

Premiums ceded were 1.4% of gross premiums written compared to 9.1% of
gross premiums written for the same quarter in 2009.

Net premium earned growth reflects the maturing on the premiums
earning pattern from its start up phase in 2009.

The loss and loss adjustment expenses have increased for the three
months ended December 31, 2010 due to the growth in earned premiums.

General and administrative expenses include staff and salary related
costs, administration expenses and Lloyd’s specific costs such as
syndicate expenses. The increase in the fourth quarter of 2010, as
compared to the same period in 2009, is primarily related a $1.9
million onerous lease expense as we relocated our operations to new
facilities and to the growth in our Lloyd’s operations.

Below is a summary of the underwriting results and ratios for our
Lloyd’s segment for the years ended December 31, 2010 and 2009:

For the years ended December 31,

2010

2009

$ Change

% Change

Property reinsurance

$

83,177

$

60,195

$

22,982

38.2

%

Short tail specialty and casualty reinsurance

104,243

85,694

18,549

21.6

%

Gross premiums written

187,420

145,889

41,531

28.5

%

Premiums ceded

(24,450

)

(18,504

)

(5,946

)

32.1

%

Net premiums written

162,970

127,385

35,585

27.9

%

Net premiums earned

145,246

62,130

83,116

133.8

%

Other related income

13,566

8,749

4,817

55.1

%

Loss and loss adjustment expenses

(115,711

)

(40,847

)

(74,864

)

183.3

%

Acquisition costs

(34,818

)

(14,608

)

(20,210

)

138.3

%

General and administrative expenses

(26,144

)

(15,904

)

(10,240

)

64.4

%

Underwriting loss

$

(17,861

)

$

(480

)

$

(17,381

)

3,621.0

%

Loss ratio

79.7

%

65.7

%

Acquisition cost ratio

24.0

%

23.5

%

General and administrative expense ratio

18.0

%

25.6

%

Combined ratio

121.7

%

114.8

%

The increase in the gross property premiums written is primarily due
to the growth in direct and facultative and binder business.

Premiums ceded were 13.0% of gross premiums written compared to 12.7%
of gross premiums written for the same period in 2009.

Premiums ceded to Flagstone Suisse under our intercompany reinsurance
programs were $6.1 million compared to $3.8 million for the same
period in 2009. The 2009 intercompany reinsurance program began during
the second quarter. This amount is eliminated upon consolidation.

Net premiums earned growth reflects the maturing of the premiums
earning pattern form its start up in 2009.

Other related income, derived from services provided to syndicates and
third parties, increased primarily as a result of the recognition of
profit commission from Syndicate 1861’s 2007 year of account, recorded
in the first quarter in the amount of $7.0 million.

Notable loss events recorded include:

Second quarter 2010 - loss of $17.3 million related to the
Deepwater Horizon oil rig ($14.0 million net of reinstatement
premiums), and

First quarter 2010 - loss of $5.3 million related to the Chile
earthquake ($4.9 million net of reinstatement premiums).

General and administrative expenses include staff and salary related
costs, administration expenses and Lloyd’s specific costs such as
syndicate expenses. The increase is primarily related to the growth in
Lloyd’s operations.

Island Heritage segment

Below is a summary of the underwriting results and ratios for our Island
Heritage segment for the three months ended December 31, 2010 and 2009:

The increase in gross premiums written is primarily related to
continued growth in the Bahamas, Turks and Caicos Islands and the
Cayman Islands. Contracts are written on a per risk basis and consist
primarily of property lines.

Premiums ceded were 72.2% of gross premiums written compared to 82.7%
of gross premiums written for the same quarter in 2009.

Premiums ceded to Flagstone Suisse under our intercompany reinsurance
programs were $10.1 million compared to $7.9 million for the same
period in 2009. This amount is eliminated on consolidation.

Other related income consists primarily of quota share reinsurance
ceding commissions. The other related income includes $3.6 million
related to the quota share arrangement between Island Heritage and
Flagstone Suisse. This amount is eliminated upon consolidation.

Below is a summary of the underwriting results and ratios for our Island
Heritage segment for the years ended December 31, 2010 and 2009:

The slight increase in gross premiums written is primarily related to
continued growth in the Bahamas, offset by softening of rates in the
U.S. Virgin Islands and the Cayman Islands. Contracts are written on a
per risk basis and consist primarily of property lines.

Premiums ceded were 88.7% of gross premiums written compared to 89.4%
of gross premiums written for the same period in 2009.

Premiums ceded to Flagstone Suisse under our intercompany reinsurance
programs were $35.7 million compared to $34.8 million for the same
period in 2009. This amount is eliminated upon consolidation.

Other related income consists primarily of quota share reinsurance
ceding commissions. The other related income includes $15.5 million
related to the quota share arrangement between Island Heritage and
Flagstone Suisse compared to $14.3 million for the same period in
2009. This amount is eliminated upon consolidation.

Investment results

The total return on our investment portfolio, excluding noncontrolling
interests in the investment portfolio, comprises investment income and
realized and unrealized gains and losses on investments. For the three
and twelve months ended December 31, 2010, the total return on invested
assets was 0.8% and 4.2%, respectively, compared to 1.4% and 4.6%,
respectively for the three and twelve months ended December 31, 2009.
The change in the return on invested assets of (0.6)% and (0.4)% during
the three and twelve months ended December 31, 2010, compared to the
same periods in 2009 is primarily due to lower interest rates during the
periods.

Net investment income

Net investment income for the three months ended December 31, 2010 was
$8.5 million compared to $8.9 million for the same period in 2009, a
decrease of $0.4 million. The decrease is principally due to the
decrease in interest rates during the current quarter.

Net investment income for the twelve months ended December 31, 2010, was
$31.5 million compared to $28.5 million for the same period in 2009, an
increase of $3.0 million. The increase is primarily due to the increase
in yield caused by the change in asset allocation, which was partially
offset by lower interest rates during the year.

Net realized and unrealized gains and losses – investments

Net realized and unrealized gains on the Company’s portfolio amounted to
$6.5 million and $43.8 million for the three and twelve months ended
December 31, 2010, respectively, compared to gains of $13.2 million and
$39.7 million for the three and twelve months ended December 31, 2009,
respectively. These amounts comprise net realized and unrealized gains
and losses on our fixed maturities, equities, other investments and on
our investment portfolio of derivatives which includes, U.S. equity,
global equities, global bonds, commodity and real estate futures, "to be
announced" mortgage-backed securities, interest rate swaps and total
return swaps.

The decrease in the net realized and unrealized gains on investments for
the three months ended was primarily due to steepening of the yield
curve in the current period, which was partially offset by positive
performance of global equity markets.

The increase in net realized and unrealized gains on investments for the
twelve months ended December 31, 2010, was primarily due to positive
performance on global equity markets and other investments, which was
partially offset by decreasing interest rates and a smaller impact from
tightening credit spreads in the current year.

Treasury hedging and other

Net realized and unrealized gains and losses – other

The Company's policy is to hedge the majority of its currency exposure
with derivative instruments such as currency swaps and foreign currency
forward contracts. Net realized and unrealized gains - other amounted to
$3.1 million and $14.4 million for the three and twelve months ended
December 31, 2010, respectively, compared to $nil and $11.3 million,
respectively, for the same periods in 2009.

The components of the $3.1 million and $14.4 million gains for the three
and twelve months ended December 31, 2010, are as follows:

Three months ended

Twelve months ended

December 31, 2010

December 31, 2010

(Expressed in thousands of U.S. dollars)

Currency swaps

$

(342

)

$

(1,290

)

Foreign currency forward contracts

3,302

13,930

Reinsurance derivatives

112

1,801

Net realized and unrealized gains - other

$

3,072

$

14,441

Interest expense

Interest expense was $2.6 million and $10.4 million for the three and
twelve months ended December 31, 2010, respectively, compared to $2.6
million and $12.1 million for the three and twelve months ended December
31, 2009, respectively. Interest expense consists of interest due on
outstanding debt securities and the amortization of debt offering
expenses. The decrease in interest expense for the twelve months ended
December 31, 2010, compared to the same period in 2009 is primarily
related to the decrease in short term interest rates from period to
period.

Flagstone shareholders’ equity

During the fourth quarter of 2010, the Company made no repurchases
pursuant to its buyback program. As of December 31, 2010, authority to
make up to $11.2 million of repurchases remained available under the
buyback program.

On December 14, 2010, Flagstone (Bermuda) Holdings Limited ("Bermuda
Holdings”), a subsidiary of the Company, purchased 8,005,024 shares of
Flagstone, owned by companies associated with the Company’s former
Executive Chairman, Mark Byrne ("Mr. Byrne”), in connection with the
retirement of Mr. Byrne as a member of the Board of Directors of the
Company and pursuant to the Purchase Agreement between Bermuda Holdings
and Mr. Byrne at a total cost of $91.8 million. Also in connection with
Mr. Byrne’s retirement, Bermuda Holdings purchased from Haverford, the
Amended and Restated Share Purchase Warrant dated as of June 25, 2010,
issued to Haverford and exercisable for 7,955,553 shares of Flagstone at
a total cost of $14.2 million, which includes $0.7 million of
transaction costs.

At December 31, 2010, Flagstone’s shareholders' equity was $1.1 billion
and diluted book value per common share was $15.51.

Additional information

The Company will host a conference call on Tuesday, February 15, 2011,
at 9:30 a.m. (EDT) to discuss this release. Live broadcast of the
conference call will be available on the Financial & Investor section of
the Company’s website at www.flagstonere.com.

The Company, through its operating subsidiaries, is a global reinsurance
and insurance company that employs a focused and technical approach to
the property, property catastrophe, and short-tail specialty and
casualty insurance and reinsurance businesses. The Company is traded on
the New York Stock Exchange under the symbol "FSR” and the Bermuda Stock
Exchange under the symbol "FSR BH”. Additional financial information and
other items of interest are available on the Company’s website located
at www.flagstonere.com.

Please refer to the unaudited December 31, 2010, Financial Supplement,
which will be posted on the Company’s website for more detailed
financial information.

(1) Distributions declared per common share are in the
form of a non-dividend return of capital. Prior to the Company’s
redomestication to Luxembourg on May 17, 2010, such distributions
were in the form of dividends.

This report may contain, and the Company may from time to time make,
written or oral "forward-looking statements” within the meaning of the
U.S. federal securities laws, which are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. All
forward-looking statements rely on a number of assumptions concerning
future events and are subject to a number of uncertainties and other
factors, many of which are outside the Company’s control, that could
cause actual results to differ materially from such statements. In
particular, statements using words such as "may”, "should”, "estimate”,
"expect”, "anticipate”, "intend”, "believe”, "predict”, "potential”, or
words of similar import generally involve forward-looking statements.

Important events and uncertainties that could cause the actual results
to differ include, but are not necessarily limited to: market conditions
affecting our common share price; the possibility of severe or
unanticipated losses from natural or man-made catastrophes; the
effectiveness of our loss limitation methods; our dependence on
principal employees; the cyclical nature of the insurance and
reinsurance business; the levels of new and renewal business achieved;
opportunities to increase writings in our core property and specialty
reinsurance and insurance lines of business and in specific areas of the
casualty reinsurance market; the sensitivity of our business to
financial strength ratings established by independent rating agencies;
the estimates reported by cedents and brokers on pro-rata contracts and
certain excess of loss contracts in which the deposit premium is not
specified; the inherent uncertainties of establishing reserves for loss
and loss adjustment expenses, and our reliance on industry loss
estimates and those generated by modeling techniques; unanticipated
adjustments to premium estimates; changes in the availability, cost or
quality of reinsurance or retrocessional coverage; our exposure to many
different counterparties in the financial service industry, and the
related credit risk of counterparty default; changes in general economic
conditions; changes in governmental regulation or tax laws in the
jurisdictions where we conduct business; the amount and timing of
reinsurance recoverables and reimbursements we actually receive from our
reinsurers; the overall level of competition, and the related demand and
supply dynamics in our markets relating to growing capital levels in the
insurance and reinsurance industries; declining demand due to increased
retentions by cedents and other factors; the impact of terrorist
activities on the economy; and rating agency policies and practices.

These and other events that could cause actual results to differ are
discussed in more detail from time to time in our filings with the SEC.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by U.S. federal
securities laws. Readers are cautioned not to place undue reliance on
these forward-looking statements, which are subject to significant
uncertainties and speak only as of the date on which they are made.

Non-GAAP Financial Measures

In addition to the U.S. GAAP financial measures set forth in this Press
Release, we have presented "basic and diluted book value per common
share” and "operating income”, which are non-GAAP financial measures.
Management uses growth in diluted book value per common share as a prime
measure of the value the Company is generating for its common
shareholders, as management believes that growth in the Company’s
diluted book value per common share ultimately translates into growth in
the Company’s stock price.

Basic book value per common share is defined as total Flagstone
shareholders’ equity divided by the number of common shares outstanding
at the end of the period plus vested restricted share units, giving no
effect to dilutive securities. Diluted book value per common share is
defined as total Flagstone shareholders’ equity divided by the number of
common shares and common share equivalents outstanding at the end of the
period including all potentially dilutive securities such as the
warrant, performance share units ("PSUs”) and restricted share units
("RSUs”). When the effect of securities would be anti-dilutive, these
securities are excluded from the calculation of diluted book value per
common share. The warrant was anti-dilutive and was excluded from the
calculation of diluted book value per common share as at December 31,
2010 and 2009.